Legal and regulatory updates

The Hong Kong Court of Appeal has suggested that a previous Court decision may have overstepped the mark by suggesting that an arbitration clause in a client agreement should generally take precedence over a creditor’s right to present a winding-up petition.

In But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 (an otherwise fairly routine financial product misrepresentation case), Vice President of the Court of Appeal Madam Justice Kwan made obiter comments implying that the test previously set out by Harris J last year in Lasmos Limited v Southwest Pacific Bauxite (HK) Limited [2018] HKCFI 426, which followed recent English authority, appeared to be at odds with classical Hong Kong and Commonwealth authority whereby a winding-up petition may only be dismissed by establishing a bona fide defence on substantial grounds to the claim for the underlying debt.
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American pet owners are probably all familiar with Chewy, an e-commerce pet food and products supplier that will quickly ship those heavy bags of dog or cat food right to your doorstep at competitive prices. No longer did one of the authors of this article have to walk 30 minutes round trip in the dog days of humid DC summers to pick up and carry a 30 pound bag of Taste of the Wild grain-free high prairie recipe to feed an English bulldog and a French bulldog. Leveraged finance attorneys, investors, lenders and borrowers should also be familiar with Chewy, though for reasons that highlight the complexities and risks associated with today’s leverage finance market.
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On 19 September 2019, Norris J handed down judgment in the challenge brought by six landlords against the Debenhams Retail Limited (Debenhams) company voluntary arrangement (CVA) which was approved by 94.71% of Debenham’s unsecured creditors on 9 May 2019. The challenge been watched with significant interest, particularly by the landlord community, which has for some time expressed increasing concerns regarding the use of CVAs as a mechanism to commute leasehold liabilities while other unsecured creditors’ rights remain unaffected. While CVAs have been the subject of legal challenges previously, the Debenhams challenge is the first time certain key elements of CVAs in play in the market have been tested before the court.  Norris J’s decision provide welcome clarification on a number of key issues concerning the treatment of leases in retail CVAs.

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The Preventive Restructuring Frameworks Directive (EU) 2019/1023 is finally in force. Following its implementation into EU member states’ national law, the directive will hopefully prove an effective tool for Europe’s restructuring practitioners, just as the continent’s economic outlook darkens.
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In In re 1141 Realty Owner LLC, et al. , No. 18-12341 (SMB), 2019 WL 1270818 (Bankr. S.D.N.Y. March 18, 2019), Bankruptcy Judge Stuart M. Bernstein of the U.S. Bankruptcy Court of the Southern District of New York reaffirmed that upon sufficient contractual language, “make whole” prepayment premiums are enforceable under New York law even after loan acceleration. The court emphasized that the language of the contract provided for such a result and that this was an enforceable liquidated damages clause under New York law.
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When a company is placed in business rescue, employee claims continue to arise in places like the Commission for Conciliation, Mediation and Arbitration (the CCMA) and the Labour Court. And, there are cases where employees who have not received payment from their employer approach the Labour Court. The question that arises is how these claims are to be addressed.


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Recently the German legislature passed a new law, exempting extraordinary profits created by the waiver of claims under restructurings from income tax liability. The amendment was necessary because the German Federal Tax Court had previously held the original administrative decree (which in a conceptually different manner avoided the tax burden on such profits) unlawful. This article gives a brief overview over the legislative history and the practical consequences of the amendment.
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The Recast Insolvency Regulation 2015/848 governs cross-border insolvency proceedings within the European Union. It provides in particular for the opening of the main proceedings by the jurisdiction of the member state where the centre of the debtor’s main interests is located (presumed to be the place of its registered office) and the opening of one or more secondary proceedings in the member states where the debtor possesses an establishment.

In the case at hand, insolvency proceedings were opened in 2012 in Romania against Izoplac, its headquarters being in Romania. In 2014, Izoplac was placed under judicial liquidation in France upon the request of a creditor. The court set the insolvency date and the Public Prosecutor petitioned for a ban on managing against the manager for failing to file for insolvency within 45 days.
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The recently published report on the evaluation of the ESUG, the German law to facilitate the restructuring of companies, states that the changes introduced by the ESUG have been received positively overall, but that there is still room for improvement in many areas. Should the EU Restructuring Directive actually be adopted at the beginning of 2019, the legislator would have the opportunity to improve the ESUG legislation and implement the EU requirements for pre-insolvency restructuring proceedings in one bill. This would give the legislator the opportunity to further increase the global competitiveness of the German insolvency code and thereby strengthen the German market as such.
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